Digital Banking

The true cost of the liability shift for fuel and convenience retailers

Brian DuCharme, vice president of product management for TNS’ FinTech Payments explains the importance of upgrading payment equipment at automated fuel dispensers to be EMV compliant. For those who procrastinate, DuCharme warns the cost may be surprising.

Photo provided by iStock

October 2, 2020 by Brian DuCharme — VP product, TNS

Certain important dates tend to dominate one's thoughts the closer the day gets — for teens, it's their high school graduation date; for adults, it might be a wedding day or a baby's due date. And for many fuel retailers, the date haunting their dreams is swiftly approaching: April 2021.

That's the deadline to upgrade payment equipment at automated fuel dispensers (AFDs) to be EMV compliant. Once this deadline passes, full liability shifts to the party in the payment chain with the least secure payment technology.

Specifically, this means after the deadline, any fuel retailer who has not updated their AFDs to support EMV-certified chip readers will automatically lose a chargeback inquiry and be subject to additional compliance fees.

It can also be argued that savvy fraudsters will begin to target locations that haven't enabled EMV, because they know they have a better shot at getting away with fraud.

And the longer retailers wait to upgrade, the more it will likely cost. Conexxus, a non-profit trade industry technology organization, found that installation costs (e.g., labor) tend to increase due to high demand leading up to an industry-wide change. On average, installation costs rise 14% six months before the deadline, 23% three months before the deadline, and 33% at the deadline, and remain around 31% higher following the deadline.

These are three very good reasons to upgrade payment equipment at the pumps immediately. Yet not all retailers have finished, or even started, their EMV upgrade projects.

There's now a fourth good reason to get moving on projects; while retailers have long understood they will bear the costs of shifted liability, it wasn't clear until recently just how much not upgrading could cost a retailer in real dollars.

Spoiler alert: It's a lot.

The Cost of the Liability Shift in Real Dollars

In July 2020, Mercator Advisory Group, a global payments industry advisor, performed an independent analysis and created a calculator to estimate the costs of the liability shift. The model was built around certain facts (e.g., average losses, risk of site location); straightforward assumptions (e.g., variable losses, factors contributing to a loss beyond fuel); and reasonable conclusions, such as combined risk factors, time and a first-year liability estimate.

And the figures the group came up with were not insignificant. For example, the average cumulative liability shift of EMV at the pump over 12 months of operation, for a retailer with 12 locations evenly spread across low-, medium- and high-risk areas, is estimated to be $207,783 total, or $17,315 per site — not exactly pocket change. This could change dramatically depending on the risk position of each station.

Because Mercator applied a lower loss rate than existing analyses as its starting point to high-risk locations, and then decreased the loss rate even more for lower-risk locations, its analysis takes a notably conservative view of the liability shift.

The estimated size of this cost to owner/operators illustrates the importance of upgrading to EMV sooner rather than later to avoid these costs and reduce the risk of fraud at the pump: Additional data from Conexxus projects $451 million in AFD fraud in 2020, using calculations based on three major card brands' September 2019 reports.

The good news is Conexxus also found an 87% decrease in counterfeit fraud for EMV-enabled retailers from September 2015 to March 2019. While upgrade projects are not inexpensive, they're necessary: With the cost of doing business increasing all the time, no owner or operator wants to be saddled with additional costs associated with the liability shift due to fraud – or become known among their customers as an easy target for fraud.

Don't Wait Until It's Too Late

Retailers can't afford to wait until they're stuck paying the literal costs of the liability shift. By upgrading now, retailers can gain better, more secure fuel dispensers, and as a bonus, they can maximize their return on investment by upgrading not just the pumps themselves, but also the payments technologies that support secure transactions at the pumps. To select an ideal AFD payments technology, look for end-to-end managed network service provider solutions with always-on connectivity, and 24/7/365 fraud monitoring for not only the payment devices, but also the connection itself.

With modern AFD equipment supported by the latest network connectivity technology, fuel retailers can avoid the costs of the liability shift and reduce chargebacks and the risk of fraud at the pump — while also meeting customer expectations for fast, secure transactions.